Greek Finance Minister George Papaconstantinou on Tuesday proposed a ban on derivative trading techniques that increase debt costs for countries like Greece which struggle to cut their deficits.

In an interview on CNBC television, Papaconstantinou recounted how the Greek government that came to power last fall discovered budget deficits were twice what had been made public and instituted austerity measures to try to regain control.

Greece is doing what it should be doing to clean up its own mess, Papaconstantinou insisted. However, there's a broader problem here, it's a European problem, it has to do with the euro and it has to do with speculation.

He repeated a call made on Monday by Greek Prime Minister George Papandreou for stricter controls to curb speculators that target debt-strapped countries and make it difficult and costly for them to borrow to finance their deficits.

What has become very clear in this affair is that over and above the fiscal problems that any particular country has...there are kinds of questions about what kinds of use people make of things like credit derivative swaps, how opaque these markets are, how it's not clear who's trading what and how these can push countries...to the brink, he said.

TAKE MESSAGE TO OBAMA

Ahead of meetings later today at the White House with President Barack Obama and Treasury Secretary Timothy Geithner, Papaconstantinou said more regulation and transparency was needed in markets for insurance-like products called credit default swaps, including measures such as a ban on naked short selling.

Hedge funds have been accused of aggravating the Greek debt crisis by using CDSs to bet on a potential sovereign default

without owning the underlying bonds.

(There should be) more transparency, a ban on naked selling, for example, Papaconstantinou said.

His call for action came shortly after European Union Commission President Jose Manuel Barroso said that the EU would examine banning naked short-selling of sovereign debt.

Greek officials are spending four days in Washington after meeting Germany's Chancellor Angela Merkel and French President Nicolas Sarkozy to discuss steps Greece is taking to deal with its budget issues.

Papandreou was on Capitol Hill on Tuesday, meeting the speaker of the U.S. House of Representatives, Nancy Pelosi, who later had words of praise for the Greek government's determination to take the bitter medicine it needs to restore its budget health.

The Greek people can be assured the United states will stand with them at this critical time, Pelosi told reporters.

Papandreou on Monday urged Group of 20 nations to crack down on market speculators and said the action was necessary to ward off risks of another global financial crisis.

GOLDMAN NOT AT FAULT

Papaconstantinou defended a controversial financial transaction between Goldman Sachs and the Greek government back in 2001 that critics say helped mask Greece's

debt load as it struggled to meet criteria to adopt the euro.

What this particular bank did was a particular operation which at the time was fully legal and within Eurostat rules… similar operations were done in other countries, Papaconstantinou said.

Unfortunately this particular operation got a lot of publicity because it came in the middle of Greece's financial and fiscal woes.

Papaconstantinou insisted Greece was making progress in dealing with its problems, notwithstanding public anger within the country at some of the severe austerity measures including cuts in civil servants' pay that has caused strikes.

In five short months we've shown a determination that I don't think has been there before, he said. The markets seem to be reacting positively to this.

He played down the seriousness of public unrest at the measures the Greek government has imposed in order to get spending down.

I think it is totally normal and these kinds of reactions are expected, he said. We are doing something that is difficult and which will affect citizens.

(additional reporting by Glenn Somerville)

(Reporting by Harry Papachristou and Lesley Wroughton, Editing by Andrew Hay)

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